19 September 2016

The Popularization of Entrepreneurship and Customizing Arrangements with Each "Employee"

Ricardo Semler was the first CEO I'd heard of to have half a dozen folks working side by side on a factory floor, each with different arrangements. One might be working for a monthly salary, another hourly, another doing piece work and another renting equipment from Semco (the company founded by Semler's father and later run by Ricardo) to make the product the employee would sell on their own, outside of Semco. Semler may have helped to pioneer something that will become common.

The next big wave is going to be the popularization of entrepreneurship and one element of this will be to make more employees more entrepreneurial. Having multiple arrangements with "employees" is key to this.

One reason flexible arrangements is key to making employees more entrepreneurial is because it forces both sides - management and the employee - to consider and understand the source of revenue and profit. There is no arrangement that you should make that would be bad for either side. But you can't make an intelligent offer or counter-offer without information about where profits come from. Curiously, the typical employee today has no real sense of whether she's a necessary cost or a source of value that generates 90% profit margin.

If you are going to have real and useful deals made for each employee's arrangement, it means that you have a real and clear sense of how the company creates value. That alone suggests clarity that rarely exists or at least is rarely communicated widely.

Then, once you have clarity about the sources of profit and your employees have clarity about what they would most like now - this one wants to work 10 to 12 hour days in order to make as much as possible at this stage of life, this one wants to work only 6 hours a day because their child is in school only that long, this one wants to work on projects that require 10 hour days for months and then take a month or two sabbatical, this one wants to take the risk that what they're doing will payoff handsomely and wants to be paid half in salary now and half in future profits later - you have the basis for profitable deals and custom arrangements.

These custom arrangements do at least two things. One, it gives employees the ability to customize their jobs to fit their lifestyle. Two, it drives every deal towards greater profit, because everyone knows that profit is what funds these deals and gets them approved. If your proposal will generate profit, management can say yes. Timothy Ferris argues for the relentless application of the 80-20 rule, looking for the 20% of your activity that results in 80% of your value. People looking to make arrangements would be continuously looking for ways to add more value in less time, translating the gain into either more time off or more income. This would democratize the drive for profit and would fund autonomy.

It will also do something else that we in the West have done three times before. It will make the institution the tool for the average person.

Between 1300 and 1700 - during the first market economy that we'd call an agricultural economy - the church in the West became a tool for the average person. We got religious freedom and that meant that individuals defined their beliefs and could even found a church to realize that.

Between 1700 and 1900 - during the second, industrial economy - the nation-state became a tool for the average person. Subjects became citizens.

Between 1900 and 2000 - during the third, information economy - the bank became a tool. Average people who could scarcely get a loan in 1900 were regularly throwing away offers for credit by 2000.

Within the next few decades, the corporation will become a tool for employees. And one of the ways that this will play out is through flexible arrangements employees define that give them more autonomy and give them - and the corporation - more profit.